Bad Faith - Indiana Court of Appeals Holds That Trial Court Abused Discretion by Refusing Protective Order in Bad Faith Litigation
Last week, the Indiana Court of Appeals in Allstate Insurance Co. v. Scroghan, No. 03A04-0410-CV-554 (July 25, 2006) addressed a variety of recurring discovery issues in bad faith litigation. Scroghan held,
among other things, that an insurer sanctioned for failing to comply with an order compelling discovery could, by appealing the sanctions order, also obtain interlocutory review of the underlying discovery ruling.
Scroghan involved a host of discovery disputes arising in the course of a bad faith claim brought against Allstate Insurance Company for allegedly refusing or delaying payment on an uninsured motorist claim. One
area of dispute involved plaintiff’s discovery requests for: information about the compensation of the Allstate employees involved in the claim; all manuals and documents relating to performance, evaluation and compensation,
incentive programs, and retirement funds; all cost control manuals and procedures; all training manuals and materials; materials concerning Colossus, a computer program used to assist personnel in evaluating claims; and materials
created in connection with Allstate’s hiring of a management consulting firm to create and implement a claim process “redesign” that included “cost control measures aimed at reducing the amount paid out
on claims.” Allstate requested a protective order on the ground that these materials were trade secrets and/or confidential, but the trial court refused to enter such an order and granted a motion to compel production.
The trial court also refused to certify its ruling for interlocutory appeal.
Allstate nevertheless continued to maintain its objections and declined to produce the documents pending exhaustion of all avenues of appeal. Ultimately, the trial court sanctioned Allstate and ordered it to pay $10,000 for
failing to comply with the discovery order.
When Allstate appealed under Indiana Appellate Rule 14(A), which allows an interlocutory appeal as of right of orders requiring the payment of money, plaintiff argued that the appellate court could address only the sanction and had
no jurisdiction to review the underlying discovery order. The Scroghan court disagreed. After conceding that there was no Indiana case law specifically discussing the issue and emphasizing that the courts “certainly
do not encourage parties to intentionally violate a discovery order so as to be sanctioned and thus obtain an interlocutory appeal,” the court stated that “we can see the narrow situations, such as this one, where such
a strategy may be utilized.” It noted that a party in Allstate’s position “has few options since complying with the court’s discovery order, proceeding through a trial, and ultimately winning on
appeal would be a hollow victory indeed when the information . . . would then already have been disclosed.” “In such situations,” the court said, “if a party is willing to incur possibly serious
sanctions to obtain review . . ., then the option should be available.”
On the merits, the court held that the trial court had abused its discretion in refusing the protective order. It remanded the case for entry of an order containing specific limitations on the use and dissemination of the materials
by plaintiff’s counsel. Although it thus upheld Allstate’s position on this issue, the court nevertheless affirmed the $10,000 sanction on the ground that this “de minimis” sanction was warranted
based on Allstate’s conduct involving other discovery issues in the litigation.